Stock Market Rebound Should Take Over a Year, Most Fund Managers Say

RIO DE JANEIRO, BRAZIL – The wave of panic in the markets in recent days as the new coronavirus has progressed should take a long time to be cleared from asset prices. This week alone, the IBOVESPA index recorded four circuit breakers (halting trading during 30 minures) and a drop of more than 25 percent in four trading sessions.

A survey conducted by XP Investments with 30 stock managers shows that a majority (56 percent) believe it will take at least a year for the stock market index to return to pre-Carnaval levels, at 115,000 points.

Next in order were a substantial minority (37 percent), who expect the rebound to happen between six and 12 months. Only seven percent project a rebound in less than six months.

For 13 percent of consulted managers of long-only funds (which only allow for long positions in assets) and long-biased funds (which allow for greater flexibility in positions), there will be an adjustment in market turbulence in up to one month.

As for 60 percent, they believe in a longer term for the end of the excessive volatility, of up to three months. The other 27 percent believe that this may take up to a semester to materialize.

In the survey, stock managers were also questioned about the minimum level expected for the IBOVESPA in this crisis. For 47 percent of those consulted, the index is expected to bottom out somewhere between 65,000 and 70,000 points, which corresponds to a drop of more than six percent in relation to the current levels.

Another 37 percent believe it will drop even further, with the benchmark reaching between 60,000 and 65,000 points, equivalent to a decline of a further 13 percent. For 13 percent of respondents, the IBOVESPA may drop between 55,000 and 60,000 points, an additional drop of almost 20 percent.

According to the survey, 77 percent of stock managers believe that the coronavirus crisis will have an overall impact of between ten and 30 percent on company results. Another 20 percent perceive a lesser effect, from a potential drop of up to ten percent in balance sheet reports. Only three percent expect a 30-50 percent worsening in the companies’ actual results.